What Do the Chinese Spend Money On?

Four years ago I wrote about some money habits of Chinese people. Most notably I said that Chinese people have a very high savings rate. Some readers have asked me what Chinese people are saving for. Recently I just made another trip to China, and I would like to share some of my observations on the subject of how Chinese people spend their money currently.

First of all, I should clarify that I am writing from the point of view of a upper-middle-class urban Chinese family that makes around $1,000 to $2,000 a month. There are many extremely wealthy Chinese people, and there are countless Chinese people who are much poorer. Their spending habits may be vastly different. (See also: How Your Last Name Affects Your Spending Habits)

Housing

Housing prices have zoomed out of control in the last decade, and the government has made efforts to cool the market. Prices have come down since 2009, but most young people still are not able to afford a house without help. In my hometown of Yangzhou, apartments are selling for about 400 to 600 yuan per square foot. This means it would take an upper middle class family eight to ten years of savings to buy an 1,000 square foot apartment in cash in Yangzhou. In larger cities like Shanghai, apartments generally cost over 1,000 yuan per square foot, so it is much harder to pay cash.

Those who take a mortgage in China are called "fangnu," which means house slave. Another slang for mortgagees is "woniu," which means snail, because they are weighed down by their shelter. These people generally are extremely frugal with everything in their lives, but they spend a large percentage of their income on their mortgages. Additionally, mortgages are all adjustable in China, and the government can raise or lower the rates at will. So when people can pay cash they will do it because they just don't like the uncertainty. Upper-middle-class families generally try to provide housing for their sons once they get married, and including a new condo as a wedding gift pushes the cost of some weddings into the hundreds of thousands of dollars.

Education

Chinese public schools are not free through the 12th grade. Parents usually have to start paying for high school, or if they want to go out of their predefined district they can do so by paying. When it comes to college, many upper-middle-class parents prefer to send their children abroad because they believe foreign colleges provide a more solid education. Additionally, there are many college students without jobs now in China, so a foreign degree gives a person an extra edge in the job search. Some parents actually sell their houses to fund these international students, but others simply pony up decades of savings. There are student loans in China, but they are very rare, so most people pay for college with cash.

Cars

Cars are very expensive in China if you consider the initial cost and the cost of upkeep. First of all, all imported cars cost two to three times the list price in America due to taxes and other markups. So a car that is about $30,000 new in America can cost $60,000 to $90,000. That makes a car almost as expensive as an apartment. There are cheaper, China-manufactured alternatives to import cars, but Chinese people prefer to buy import Audis and BMWs because they say that the quality of the cars made in China isn't as good. Since they're spending such a big chunk of money, they would rather buy something nice. In addition to the initial cost of the car, there are steep costs for car registration in some cities to help curb congestion. In Shanghai it costs on average $10,000 to just register a new car, and registration is done by a monthly lottery. After you get the car and start driving, you will find that practically all the highways have a toll of around 10 cents per kilometer (16 cents per mile). Even with these costs, more and more cars are getting on the road.

The common thread that I saw in China is that Chinese people are still very frugal in their daily lives, but many people are saving up for that one big thing. Another notable thing is that Chinese parents pour everything they have into their children even after their children are adults. Ultimately, Chinese and Americans all want to live better lives, but the difference is that most Chinese people don't reach that higher standard of living on borrowed money. Sometimes I don't know if the Chinese method is smart or naive, because it seems that so many Americans get what they want without saving for years, and it is not that hard to get rid of debt through legal maneuvers.

What do you think? Is it silly to save for purchases in your life when you can just finance everything?

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Guest #1

Interesting article. As a Chinese person living in the US, I find that my frugality primarily lies in cutting costs in Housing and Cars (education is a different story) while not bothering too much to keep the other small expenses down. This is almost contrary to the Chinese way. I've never understood penny pinching on food, electronics, vacations, etc. to afford a BMW or shiny house.

A friend read an article somewhere (in Chinese) about American marketers researching the spending habits of Chinese people, going as far to tour a typical Chinese home. Everything immediately visible to a visitor including the house, car, and even the refrigerator looked pristine but once the market digged deeper, they found things such as utensils, cookware, electronics, etc. all made of cheap materials.

yup. Chinese people love to pennypinch on the small things. One example is that most grocery stores charge like 20 fen for a bag and pretty much everyone either don't buy the bag or bring their own reusable bags. That's good for the environment, though.

Hi Xin Lu, thank you for the insights. My wife and I have been here in China for the last 3 months traveling through the country and have been shocked by the amount of shopping available in every town/city we've visited. In some cases it seems there is more shopping available here than in most cities in the US or Europe.

I'm curious how you see the spending shift over the next few years as it seems there is more and more interest in spending money on the "show things" than saving up for the big purchase. This is merely anecdotal insight, but with the prices and amount of shopping we've seen it seems that China is heading rapidly towards a "spend what you earn" culture and I only hope that this does not continue to the point that debt and credit cards become rampant.

Do you see this trend as well? Is there a growing group who are spending money on "keeping up with the Jones (or Lees)"?

There is a group that spend what they earn. They're called "yueguangzhu", which literally means "month empty generation" because they have nothing left at the end of the month. As to the great amounts of shopping available, in actuality most local people don't buy the super expensive stuff in the malls. The stores also don't seem to care that they can't move merchandise. It's really weird.

I see this a lot many people, not just Chinese. They would spend more money on the name brand "show things" and then penny pinch when no one is looking.

In a recent trip to China, I also notice that more and more middle class Chinese are becoming Westernize with their shopping and product choices as oppose to my trip over 15 years ago.

Guest #6

Very interesting! I must secretly be Chinese, as this is how we are doing it- penny pinch the small things (even cars), in order to save and buy a house with little or no mortgage, after our children are in college. The house we can afford will be tiny, and rural, as we have spent most of our income to rent in a top school district. It makes a lot of sense to me, as I hate uncertainty, and we prefer lack of worry to material comforts. My children, however, see it differently.

As to your point of getting what you want on credit, then maneuvering out of it- the bankruptcy reforms attempted to make that much more difficult. Knowingly doing so to inflate lifestyle is not admirable, as others pay the burden in higher prices on everything to compensate. And student loans never go away.

I'd love to know how much financial help Americans give to their grown children in comparison to other countries. We told our kids- No scholarship, no college. No college, no good wages. No money, hard life. And once you are 18, you are a guest in our home. It worked- they are motivated achievers.

Thank you for posting this interesting article. One other question I'm wondering is whether the spending habits of Chinese immigrants in the US change or not. My take is, being in a homogenous society like China, one has to maintain 'face' in order to fit in or be accepted. Thus the propensity to spend becomes strong when their associates do so. America celebrates the individual and therefore although the peer pressure to follow the crowd is still there, but I think it's less so. To my point, I think the Chinese American immigrants are more frugal than the Chinese in China. Thus giving the impression that all Chinese are frugal.

This is really interesting insight. What strikes me about what you describe is that certain categories of expenses would be considered "savings" in China, though they're "expenses" here.

For example: If you save up for 10 years to pay cash for a house, you'd be "saving" (perhaps 30-50 percent of your income) for that entire time. However, if you buy a house in the U.S. and begin making mortgage payments, that money is considered an "expense" (even though part of it goes towards building your equity). Similarly, if you save up to pay cash for a car -- that's considered savings. But if you make car payments, that's considered an expense, even though a large chunk of it goes towards your 'car equity,' so to speak.

I suppose the difference is that if you're saving, you have the option, the opportunity, to NOT make those "payments" into your savings account, if an emergency happens and you need to re-direct that cash. If you're making payments on a loan, though, that option is no longer there. That's probably where the Chinese term "fangnu" comes from.

I suppose, also, that if you made excess, accelerated payments (above-and-beyond your minimum monthly mortgage or your minimum monthly car payment), that might be considered savings.

Its amazing how different their country is from ours, I can't believe the price of living there! But, you have to think, living on borrowed money like our government is, compared to their government, their way seems a lot better!